Portsmouth may auction 3 residential properties to highest bidder after taxes not paid

PORTSMOUTH — The city has taken three downtown residential properties by tax deed and may ultimately end up auctioning them off to the highest bidder.

The properties — which City Manager Karen Conard told the City Council had belonged to the same owner — are located at 508 Richards Ave., 150 Bartlett St. and 323 Islington St.

The City Council voted unanimously this week to refer the issue to the Planning Board for its recommendation on the best way to dispose of the three properties.

Conard stressed it’s “not typical for the city to take by tax deed, parcels in general, let alone residential parcels. The owner must fail to pay property taxes to the city for at least three years before we can even take such an action.

“Our staff goes through a pretty exhaustive attempt to collect. Until this fall … we’ve always been able to get the residential taxpayers to pay, if not at the last day, at the last hour of the last day.

“In this case, we have one owner representing three properties that failed to pay,” she added.

Valuable properties

Deputy City Attorney Trevor McCourt told the council, “We all know property prices within the city of Portsmouth are quite high. There is a considerable amount of equity in each of these properties, although the city is owed a pretty substantial sum on each of these properties. It would not be constitutional of us to take more of that value.

“It's part of our duty to return that equity back to the previous owners,” once their back taxes are paid, “however difficult it may be due to the complicated ownership structure in these cases.”

He said Monday night the council should approve a sale of the properties at auction to the highest bidder.

The city’s appraisal values of the properties are $647,000 for 508 Richards Ave, $576.000 for 323 Islington St., and $497,000 for 150 Bartlett St., according to city records.

The Islington Street property is vacant, McCourt said, but a single-tenant lives in the five unit Bartlett Street building.

“At 508 Richards, that building is fully occupied," he told he council. "It is used by the Seacoast Repertory Theatre to house some of their long-term actors who come in from different parts of the country, and I understand outside of the country as well."

After the city executed the tax deeds on the three properties, it extended the lease agreements with the tenants in the buildings, McCourt said.

Unusual city action

Reached Tuesday, McCourt too stressed how unusual it is for the city to issue the tax deeds on the properties.

“It has not happened in living memory as far as I can tell,” McCourt said.

The previous owners of the properties were listed in city records as three different limited partnerships, McCourt said.

He does not know why the property owners stopped paying their taxes.

“I really have no idea. It’s obviously unusual that properties with a considerable amount of equity would ever go to tax deeds,” McCourt said.

In addition to the tax deeds, the city is also facing litigation from “an entity known as Appledore Associates LLC,” McCourt said in a memo.

The company “claims to be the former property management company for the three properties, and it claims that the city violated state law when the tax collector did not accept payment from the property management company prior to tax deeding,” he said in the memo.

But the city believes, McCourt said, state law mandates that only someone “with a legal interest in a property” can address the tax issues.

Opportunity for affordable housing?

McCourt told the council he anticipated they might try “to ensure these properties were used for affordable housing,” which councilors have made a major focus.

“I don’t know that this is the right vehicle to accomplish that goal,” he told the council.

He cautioned trying to move forward with that option would “entail the expenditure of some funds, probably substantial funds, by the city, in order to compensate the prior owners, one way or the other.”

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If the council decides to sell the properties at auction, McCourt said, the city “would then recover the total amount of the (tax) lien, along with statutory interest, penalties, and all of its costs expended in the management of the property during the period of ownership, attorney’s fees and costs.”

Proceeds above that would go back to the previous owners, he said.

Other options for the properties

A second option could be for the city to obtain “an appraisal of the fair market value of the parcels and to offer the difference between what the city is owed and the appraised value to the previous property owners,” McCourt said.

“If accepted, city staff would then negotiate an appropriate agreement with the previous owners and return to the City Council for an appropriation of funds,” McCourt said.

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Another option could involve holding an auction of the properties, but allowing the city to bid up to a “pre-specified limit,” McCourt said.

This article originally appeared on Portsmouth Herald: Portsmouth may auction 3 homes to highest bidder after taxes not paid